Connacher's Pod One production up to 9,750 bpd
Connacher Oil and Gas Ltd (C:CLL)
Shares Issued 211,181,815
Last Close 9/26/2008 $2.95
Monday September 29 2008 - News Release
Mr. Richard Gusella reports
CONNACHER'S PROGRESS AT GREAT DIVIDE POD ONE CONTINUES
Connacher Oil and Gas Ltd. has provided an update that bitumen production at its Great Divide Pod One steam-assisted gravity drainage (SAGD) oil sands plant continues to ramp up following a recently completed mandated turnaround and recently reached 9,750 barrels per day. This production level is within 250 barrels per day of the original design capacity of the plant and was achieved with 14 of 15 well pairs contributing to recorded volumes. Steam is presently being injected into the 15th well pair and it is anticipated this well will also be placed on stream once critical downhole temperature conditions have been established in the related wellbores. When combined with current conventional production of approximately 3,600 barrels of oil equivalent per day, Connacher's total production has now surpassed 13,350 barrels of oil equivalent per day, a record for the company.
Connacher also notes that an electrical submersible pump has also been installed in one of the 14 well pairs and following a monitoring period, additional pumping equipment may be installed in other well pairs. It is anticipated these installations would allow wells to produce with greater consistency at lower pressures and therefore lower steam/oil ratios (SORs). Lower SORs would contribute to the continued lowering of unit operating costs over time.
Thus far in the third quarter 2008, Connacher is experiencing strong cash flow from operations before changes in working capital as a result of the significant and growing contribution of its conventional production and its bitumen production at Pod One. The impact of these volume increases in recent months has been reinforced by continuing reductions in related unit operating costs, especially for bitumen production. In August, 2008, for example, these unit operating costs were estimated to have been reduced to under $20 per barrel, which were well below levels recorded during the earlier stages of the company's ramp-up at Pod One. Further unit operating cost improvements are anticipated as 2008 progresses, as the company's recent volume ramp-up will spread associated fixed costs over the company's larger production base. Unit operating costs for the company's total production base, including conventional and bitumen production, were estimated to have been even lower at approximately $16 per barrel of oil equivalent in August, 2008. These lowering of costs, together with strong second half 2008 selling prices, have provided the basis for much-improved wellhead or plant gate netbacks for bitumen and overall production, and for resultant corporate cash flow from operations before working capital changes.
Readers should note that terms such as netbacks and cash flow from operations before working capital changes are non-GAAP terms and that the use of the term barrel of oil equivalent may be misleading if used in isolation.
Recently, statements have been made by the ruling Conservative Party of Canada during the current Canadian election campaign suggesting that a "re-elected Harper government will prohibit the exportation of bitumen outside of Canada for upgrading in order to take advantage of lower pollution or greenhouse gas emissions standards elsewhere." While this is not yet official policy as the outcome of the election remains to be determined and is seemingly focused on bitumen sales to markets outside North America, Connacher can advise that it anticipates selling little, if any, raw bitumen anywhere and that virtually all of its current sales, which primarily consist of diluted bitumen, have been made and are being made in Canada, primarily to Canadian purchasers which are also operators of integrated upgrading facilities in the general vicinity of Connacher's Pod One operations. Furthermore, Connacher currently purchases Bow River heavy crude oil produced in Canada for its refinery at Great Falls, Mont. The company's refinery operates effectively and safely within the framework of very strict environmental standards as established by United States Federal and Montana State agencies.
Connacher is conducting front-end engineering and design (FEED) studies relating to a potential expansion over several years of the daily throughput capacity of its Montana refinery from approximately 9,500 barrels per day to approximately 35,000 barrels per day. This study is now scheduled to be completed sometime in 2009, at which time Connacher's management will assess the merits of such an expansion in the context of anticipated costs, anticipated investment returns, together with prevailing and anticipated conditions for both financial markets and product markets. If warranted, the matter would then be brought forward for consideration by the company's board of directors. A final decision whether or not to proceed will depend upon these and other factors, which will be assessed at the appropriate time, which remains solely within Connacher's determination as it owns 100 per cent of the refinery as well as most of its upstream operations.
Connacher also continues to examine various pipeline alternatives as a longer-term solution to the requirement of transporting growing Great Divide diluted bitumen production to available markets. Presently Connacher trucks its diluted bitumen to available markets. A decision on which alternative to pursue will likely be arrived at after construction is initiated at the company's second 10,000-barrel-per-day Great Divide project at Algar, for which regulatory approval is believed to be imminent. Once the regulatory approval is issued by Alberta's Energy Resources Conservation Board, further formal approval by the Alberta cabinet through the issuance of an order in council is required. It is anticipated this should happen as quickly as the item can reach the cabinet's agenda, following which Connacher will be authorized to proceed with field construction.